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Bitcoin Dips After Shrem Arrest

Charlie Shrem, the 24 year old co-founder and CEO of the Bitcoin startup company BitInstant, was arrested at John F. Kennedy International Airport in New York on Sunday.

He has been charged with conspiracy to commit money laundering and contributing to anonymous drug sales. Shrem is also vice president of the Bitcoin Foundation.

Bitcoin is a virtual currency that uses peer-to-peer technology to enable instant payments. It is also referred to as a cryptocurrency, meaning that it uses cryptography for security.

Robert Faiella, a virtual currency trader known as BTCKing, has also been arrested and charged for the same crimes.

The charges accuse the men of engaging in a plan to sell over $1million in bitcoins to users of Silk Road, an online black marketplace linked to drug sales. Silk Road was shut down by the FBI in 2013.

Preet Bharara, U.S. attorney for the southern district of New York, stated; "As alleged, Robert Faiella and Charlie Shrem schemed to sell over $1m in Bitcoins to criminals bent on trafficking narcotics on￼￼￼￼￼ the dark web drug site, Silk Road."

"Truly innovative business models don’t need to resort to old-fashioned law-breaking," he added, "and when bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act. We will aggressively pursue those who would co-opt new forms of currency for illicit purposes.”

Investors in BitInstant include Tyler and Cameron Winklevoss, who in 2004 sued Facebook founder Mark Zuckerberg for $140 million. In 2013 the Winklevoss brothers led a seed round which raised $1.5 million of investment in BitInstant.

In reaction to the news the Winklevoss brothers stated: “When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws – including money laundering laws – and we expected nothing less."

"Although BitInstant is not named in today’s indictment of Charlie Shrem," they continued, "we are obviously deeply concerned about his arrest. We were passive investors in BitInstant and will do everything we can to help law enforcement officials. We fully support any and all governmental efforts to ensure that money laundering requirements are enforced, and look forward to clearer regulation being implemented on the purchase and sale of bitcoins.”

Mt. Gox Bitcoin/U.S. Dollar Daily Chart

Looking at the Bitcoin/U.S. dollar daily chart, we can see that price has retreated since the news of the Shrem arrest. However, looking at the larger picture, Bitcoin prices are still relatively strong, trading at $933 at the time of this writing. The virtual currency soared in 2013, rising from about $13 to a high of over $1,200.